Stocks Hold Gains After Fed Stays Firm on Policy

The markets held on to solid gains on Wednesday after the Federal Reserve said it will continue on with its aggressive monetary policy.

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Today's Markets

As of 3:45 p.m. ET, the Dow Jones Industrial Average futures rose 80.3 points, or 0.55%, to 14537, the S&P 500 climbed 12.9 points, or 0.83%, to 1561 and the Nasdaq Composite jumped 28 points, or 0.87%, to 3257.

The Federal Reserve said it expects to continue holding interest rates at historic lows until the unemployment rate falls below 6.5%. It will also continue buying assets at its current pace of $85 billion per month, and weigh the costs of benefits of this aggressive monetary policy.

The central bank also sees the unemployment rate falling faster than previously expected in 2013 and 2014. It now forecasts a range of 7.3% to 7.5% for this year and 6.7% to 7% the following year. The upper range of the 2015 estimate was also lowered 0.1 percentage point to 6.5%.

However, timing of the Fed's exit from quantitative easing has been key ever since minutes from the last meeting said some members were mulling "tapering" the program as the economy improves. The Fed balances its dual mandate of ensuring steadily low unemployment and keeping inflation under control in making its decisions. Over the past several years, inflation has been kept in check, so the Fed has been pushing hard to accelerate growth and push the unemployment rate down.

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"The Fed would argue, and its time market participants believed them, that as long as inflation is low, the paramount concern is the unemployment rate," Dan Greenhaus, chief global strategist at BTIG, wrote in an email. "As such and in theory, as long as inflation and inflation expectations remain contained, the FOMC could ease policy indefinitely."

Headlines from Europe have driven Wall Street higher and lower over the past two trading days. However, markets have only posted relatively mild losses even as the situation in Cyrpus remains murky. The country's parliament turned down a plan that would have financed $7.5 billion of a $13 billion international bailout with bank deposit levies.

That means Cyprus now needs to come up with a new way to kick in money for the plan, lest it risks a default and and a big blow to its banking system. Still, there are hopes among world trading desks that the situation will remain contained.

"In the glory days of the eurozone crisis a ‘no’ vote to a bailout plan would have provoked a major storm, but the small size of the bailout and the loose monetary policy environment means that most investors are happy to leave Cyprus on the back burner," Chris Beauchamp, a market analyst at IG in London wrote in an e-mail.